An affordable housing developer has become the first to use the Freddie Mac Bridge-to-Resyndication loan program to acquire an existing 366-unit affordable housing asset in Fresno, Calif.
San Diego-based Community HousingWorks (CHW) used the bridge loan, which has a taxable ARM loan structure to acquire The Parks at Fig Garden. The loan was originated by Oak Grove Capital. Simultaneously with closing, Oak Grove Capital executed an 18-month forward interest rate lock on a Freddie Mac Tax-Exempt Loan (TEL) program.
The transaction comes at a time when affordable housing owner-operators have been facing stiff competition from market-rate buyers for the purchase of existing affordable housing assets, says Tim Leonhard, managing director of affordable housing at Oak Grove Capital.
Conventional buyers have a big advantage over affordable buyers because they can often close on a deal in approximately 45 to 60 days. In comparison, it can take affordable housing owner/operators six to nine months to close because they are preparing plans to acquire the asset, perform an extensive rehab, and invest the proceeds of new low-income housing tax credits (LIHTCs) into the development, he says.
“We needed to find a way to get these type of properties into the hands of long-term affordable housing owner-operators or we are at risk of losing the desperately needed affordable housing stock,” Leonhard says.
The Bridge-to-Resyndication concept grew out of conversations at Freddie Mac’s Affordable Housing Advisory Council meeting in late April, according to Leonhard, a member of the council.
Freddie Mac leaders then developed a way to provide short-term acquisition financing so borrowers could quickly acquire existing LIHTC properties at or near the end of their initial 15-year compliance period and position those properties for recapitalization using LIHTCs and tax-exempt financing while eliminating interest rate risk on the ultimate permanent loan facility
Leonhard calls the Bridge-to-Resyndicaton loan a “product enhancement.” Freddie Mac took its existing conventional “value add” loan product and its existing TEL program and adapted them to fill a unique and important need in the industry.
The Parks at Fig Garden is CHW’s first acquisition in the state’s Central Valley.
“The Bridge-to-Resyndication loan is specifically designed to fill a relatively short but critical phase in these complicated transactions,” says Dave Gatzke, vice president of acquisitions at CHW. “Its competitive pricing and terms help our work by lowering the cost of capital and allowing us to invest more in property rehabilitation.”
For The Parks at Fig Garden transaction, the bridge loan of $14.45 million was sized to 85% of the property purchase price and has an 18-month interest-only term at an interest rate at closing of 2.49% (2.30% over 30-day LIBOR). No interest rate cap was required on the floating-rate loan. The TEL interest-rate lock was in an amount not to exceed $18.54 million, with an all-in rate of 4.42%. Upon closing of the TEL, the loan will have a 16-year term with an initial 24 months of interest only followed by a 35-year amortization period. Additionally, the TEL interest-rate lock offered the flexibility of a 15% downward resizing without penalty, should certain loan sizing assumptions change between the time of initial closing and the closing of the TEL.
“It is great to see the ingenuity, innovation, and focus that Oak Grove and the Freddie Mac Targeted Affordable Housing team bring to the affordable housing space, and we are grateful for our partnership with Oak Grove,” says David Brickman, executive vice president and head of Freddie Mac Multifamily, in a statement. “We are looking forward to the second, third, and 27th creative bridge loan closings with Oak Grove.”
Leonhard also expects to see many more deals utilize the same execution. “I think it’s going to be in very high demand, particularly in high-cost markets that are in desperate need of the creation and preservation of affordable housing stock,” he says.